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Thursday, February 28, 2013

Fourth Quarter GDP Growth Revised Up to 0.1%

GDP continued to grow in the end of 2012, albeit at a notably weak pace, following an upward revision in the BEA’s second estimate of fourth quarter GDP growth. GDP grew by 0.1% in the fourth quarter, better than the 0.1% decline reported in the BEA’s initial estimate. Despite the modest upward revision, GDP growth slowed notably in the fourth quarter from the 3.1% growth seen in the previous quarter.

As we noted following the BEA’s initial estimate, the weakness in the fourth quarter was due primarily to transient factors. Strong declines in inventories and government spending proved to be a 2.9% drag on GDP growth in the fourth quarter. One of the chief drags came from sharp cuts in defense spending, which fell at a 22% annual rate, providing a 1.3% drag on GDP. The weakness in both of these categories is expected to be a one-time event. Falling inventories is a positive sign for future growth. As inventories decline, it means more is being consumed than is being produced. This means that in coming months production will need to be ramped up to meet demand and rebuild inventories.

Despite the drag, the core components of GDP saw strong growth. Consumption added 1.5% to GDP growth, its strongest contribution since the beginning of 2011. Fixed investment was also strong, contributing 1.4% to growth.

The upward revision in the second estimate was due primarily to strong exports. Exports were revised up by 0.5% in the second estimate, swinging from a 0.3% drag to contributing 0.3%. Fixed investment was also revised up in the second estimate, adding 1.4 % to growth.